July 8 (Bloomberg) -- Senate Democratic leaders are pressing Finance Committee Chairman Max Baucus to reconsider a plan to tax employer-provided health benefits because they say it would hurt too many consumers, a Democratic aide said.

The Montana Democrat was called to Majority Leader Harry Reid’s office yesterday and told to consider alternatives to the tax, which is central to Baucus’s efforts to pay for a $1 trillion overhaul of the health-care system, said an aide close to the negotiations who asked not to be identified.

Some Democrats at the meeting also voiced misgivings that Baucus is working too hard to attract Republican support in a bid to forge bipartisan legislation that can meet President Barack Obama’s goal of lowering health costs and providing coverage to 46 million uninsured Americans, the aide said. Party leaders told him he needs to push more for a new public insurance program to compete against private insurers, a plan opposed by most Republicans, the aide said.

“We really need more help from the Republicans,” Reid, whose party controls both houses of Congress, told reporters later after a meeting of Senate Democrats. “But we can’t allow the status quo to be the order of the day. So we’re going to work as we have all year long, Democrats to stay together.”

Reid met today with four Republican senators, and afterward Chuck Grassley of Iowa and Olympia Snowe of Maine said the majority leader told them he wants a bipartisan bill.

“It was a very constructive meeting and bipartisan talks are going to continue,” said Grassley. Snowe said Reid “understands we may need more time and that’s where it stands.”

Emanuel Meets Lawmakers

The Obama administration may also be pushing harder for legislation that more Democrats will support. White House Chief of Staff Rahm Emanuel met last night with House Democrats in the Capitol, telling the lawmakers that Obama supports a public insurance program, according to several who attended.

House Democrats are seeking a new Medicare-like government program that Republicans say will drive many private insurers out of business. Baucus has been weighing non-profit co- operatives to offer competition to insurers as part of a bipartisan compromise.

Emanuel “made clear” a public option is the approach Obama prefers, said House Ways and Means Committee Chairman Charles Rangel, a New York Democrat.

“The president is with us, and we’re with the president and we hope the Senate is with us all,” Rangel said.

Senate Divisions

Yesterday’s meeting in Reid’s office underscores divisions in the Senate. Another aide close to the negotiations said Baucus laid out his plan to get to 60 Senate votes and talked about progress toward a deal Republicans could agree to.

Later in the day, Senator Kent Conrad, a North Dakota Democrat and member of the Finance Committee, told reporters some lawmakers believe taxing employer-provided health benefits will be too hard to sell to the public.

Panel members have been considering ending an income-tax exclusion for the most-expensive employer-provided health-care benefits.

Conrad said opinion polls taken last week found that the tax plan was opposed by as many as 70 percent of respondents.

“Given input from the polling, given input from our colleagues, I think you’d expect any prudent person would go, ‘OK, what are our other options,’” he said. “That’s what we’re doing.”

Alternatives

Grassley, the senior Republican on the Finance Committee, confirmed that the panel was considering alternatives yet said he favors imposing the tax because it would help limit health- care cost inflation by depressing demand for expensive plans.

Eliminating the tax proposal would create “a great big hole” in efforts to cut costs, Grassley said.

Conrad didn’t provide details about other tax options under consideration. He said they include taxes on the health-care industry and broader changes to the tax code.

Baucus has said a cap on the exclusion would probably be included in his panel’s legislation. The leading option being considered would tax benefits that exceed 110 percent of the plan offered to federal employees, which amounts to benefits above $17,240 for a family of four.

Obama instead has advocated paying for the health-care overhaul by limiting tax deductions for the wealthiest Americans and reining in the growth of medical spending.

Unions have opposed the idea of taxing health plans and pushed for an exemption for benefits provided in labor accords.

How to Pay

House committees are also grappling with the issue of how to pay for the health-care overhaul. The House Ways and Means Committee, Energy and Commerce Committee and Education and Labor Committee drafted an outline of legislation in June that they are now refining. A new bill could be introduced as early as Thursday, said a lobbyist familiar with the negotiations.

The bill may include new taxes to help finance the changes, the lobbyist said. One proposed tax would be levied on those making more than $250,000 a year, an option opposed by most Republicans, and another would be imposed on sugar and sweetened sodas, according to the lobbyist.

The bill would include $500 billion to $550 billion in cuts to Medicare over 10 years.

Democrats are also considering a mandate that all Americans have health insurance and that employers provide health benefits to their workers.

They want to create an online insurance “exchange” where individuals can buy coverage at lower group rates and the new Medicare-like program to compete against private insurers.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

Last Updated: July 8, 2009 14:10 EDT